Thursday, June 01, 2006

Pyramid Scheme Again...

“An important factor that has affected the HPI in some recent quarters is the influence of refinancings on the overall index. Valuations derived from refinance appraisals are constructed under different circumstances than those surrounding purchase prices; appraisers operate under specific types of pressures and may employ different ‘comparable’ properties in estimating value than were (implicitly) used in the formation of a purchase price.”

“Similarly, appraisals conducted for ‘rate-term’ refinances can in fact look different from appraisals for ‘cash-out’ refinances. In areas where the cash-out refinancing has grown the most, the divergence between the HPI appreciation rate and the purchase-only rate is the greatest.”

“In conclusion, the empirical evidence suggests that the growing prevalence of cash-out refinances over the last year has had the effect of increasing measured appreciation rates for the HPI. Homes with cash-out refinances likely are disproportionately those that have experienced the most appreciation. Thus the HPI dataset, which includes appraisals used for cash-out refinances, may have relatively more rapidly appreciating houses than the purchase-only index.”Even the OFHEO knows this market is a giant pyramid scheme. Home appreciations were not due to value increasing... it was due to DEBT increasing as home debtors used their houses like ATM machines and credit cards. The scheme allows them to spend their house and the next fool comes along and buys the debt. Those people are called the greater fools... or bag holders. Apparently there was a pretty good supply of them too. How loud do you think these guys will scream when the fecal matter hits the fan?

Athena, I got my usual RealtyTrac notice this morning in my e-mail box, so I deceided just for the hell of it to go check out what these foreclosure bait sh**boxes actually are worth.18155 Barret avenue. In preforclosure, owing upwards of 15k indefault on the mortgage.The house sold in Sept. 2001 for 269kAgain in March 2005 for 326kFinallly our suckers bought it in Sept. 2005 for 495k.Less than a year and theyre already in trouble.13 Melinda Lane in Petaluma...Sold in 1991 for 220k.....now in preforeclosure..for 841k...in default for 8k and change...must have been a HELOC going on there as there are no other sales on record.7620 Sonoma Highway...worth 420k....in default for 240k..how the heck did that happen??309 E street:Bought in 2000 for 275k..now in default for 7kstill the same owners..wonder what sort of loan it would be. Of course there are many factors that can contribute to this situation, illness, death, divorce, job loss incalculable things that might occur. However, when one sees such large numbers of preforeclosure properties, the main thing that comes to mind is the heady mix of bubbles and toxic loans.

mv,that 240k was likely a balloon payment,divorce,illness or job loss could all explain an inability to refi.only an inability to face reality explains why they didn't get out...sure a potful of preforeclosures and tax liens in affluent areas isn't there? effuent areas?